Is It Time to Make a Move? How Your Physical Location May Increase Your Competitiveness for Government Contracts

Sep 27, 2018

Bidsync Industry Blog

Every business would like preferential treatment when competing for a government contract. The question is, how far will your business go to secure an advantage? Would you uproot your headquarters and move it to a different city, county, or even state? That is the length to which some small businesses may go to take advantage of the increasing number of "local preference" contract awards by state and local government agencies.

The Lowdown on Local Preference Programs for Government Contract Bidders

Just like many small businesses owned by women (WOSB), minorities (MOSB), or veterans (VOSB/SDVOSB) may receive preference points during bid evaluations or qualify for government contracts set aside exclusively for their type of business, there are many small businesses that are eligible for “local preference” advantages when competing for contracts with public sector entities. In short, local preference “is a decision by the government to direct purchases to certain companies based on location” as NIGP explains.

The benefits to government, though debated by some, most frequently center around local economic stimulation. The hope is that, by “buying local,” the community will reap the rewards of increased local business revenue – to include job creation and a greater volume of tax income that can be reinvested in local programs.

The "Rewards" of Relocating

Beyond the traditional socioeconomic advantages you may gain as a WOSB, MOSB, VOSB, SDVOSB or just a traditional small business, you will gain valuable “local preference” status on nearly every bid you submit. Just know that the value is going to vary depending on the city, county, or state, as every jurisdiction has the right to define their own program parameters. As NIGP notes, there are several scenarios in which “local preference” will lead a state or local government agency to award the contract to a local company:

Tie-bids - when the bid of a local bidder is the same amount of that of a non-local bid;

Percentage bids - when the local bidder’s bid falls within a certain percentage of that of the lowest bid by a non-local bidder;

Reciprocal bids - when the local bidder’s bid is reciprocal to that of a bid of non-local bidder; and

Absolute bids - where the bid is awarded to the local bidder even if it is not lowest bid.

For example:

As described in Governing recently, Los Angeles’ local preference works like this: “When an L.A.-based firm submits a bid for goods or services to the city, the bid is considered as if it were 8 percent cheaper (and that much more attractive) than those submitted by nonlocal competitors.”

The City of Austin leverages Texas Local Government Code Chapter 271, which “allows municipalities to consider bidder’s principal place of business in certain instances. For a Construction contract, “if local bidder is within 5% of non-local bidder and contract is less than $100,000 (§ 271.9051)” then local preference can be given. However, “the municipality must determine, in writing, that the local bidder offers best combination of contract price and additional economic development opportunities, including: Employment of local/city residents and increased tax revenue to the city.”

The District of Columbia has several Certified Business Enterprise (CBE) categories that give competitive advantages to businesses with local connections, including: Local Business Enterprise, Resident-owned Business, Longtime Resident Business, Local Business Enterprise with Principal Office in Enterprise Zone, and Local Manufacturing. The terms that guide their application of local preference application vary as “bids and proposals are either evaluated using a preference point system in the form of points (in the case of proposals) or percentage reduction in price.”

Confirm How Agency Determine Your “Advantage.”

Don’t forget there are other benefits to being local as well: Proximity aids with relationship building, allows for closer oversight of projects to keep customer satisfaction levels high and makes you more accessible for briefings, site visits, etc. Being a local business also aids with awareness – of both local government bid opportunities and of your business by government procurement officials and their customers (aka the influencers and decision-makers).

The "Risks" of Relocating

First off, know that being “local” does not automatically equate to a win every time, even in jurisdictions where local preferences are exercised frequently. As NIGP points out, every public sector agency must “Adequately reconciling local preference policies with public procurement’s guiding principles of fostering full and open competition, best value, equity, and impartiality.”

Translation: Competition will still be fierce. Your pricing has to be just as aggressive as out-of-area bidders, you must still demonstrate the quality and value of your goods or services, you must have references and a solid past performance track record, and you must be able of delivering on time/on budget without issue. The government is not in a position to compromise. And every agency still has a responsibility to evaluate proposals and make an unbiased decision.

You also have to prove that you meet all “local business” criteria, which may involve either a self-validation or a third-party review and validation depending on each agency’s policy. For example, the City of San Antonio utilizes a Texas Statute amended by 82nd Legislative session to allow larger cities to grant contracting preferences to local businesses when price alone determines the winning bid. For San Antonio, a local business is defined as “a business headquartered” in the city in which it is submitting a bid or a business able to meet the following conditions: “having an established place of business for at least one year in the incorporated limits of the City and from which at least 20% of its full-time, part-time and contract employees are regularly based OR a minimum of 100 employees; and from which a substantial role in the business’ performance if a commercially useful function or a substantial part of its operations is conducted.”

Before you attempt to claim local preference for a bid, check out the individual agency’s website to confirm their program policies and validation requirements for both small businesses and local businesses. Alternatively, you could pick up the phone and call a procurement official, which also helps you establish direct contact and start to build a relationship with buyers.

Takeaway:

Ultimately, there is no single government sales strategy that is going to work for every company, including a reliance on local preference programs. If you are primarily leveraging a business-to-government sales model and require an increased volume of public sector contracts to grow your business, then it may not hurt to explore markets that could prove more advantageous from a “local preference” perspective. Just don’t forget to weigh the other business benefits offered by your current city/state or new markets to which you may consider relocating. These include tax breaks and legislative support for businesses in certain categories, of certain sizes, or of certain disadvantages.

Also confirm that there are enough potential government contracting opportunities in that region to warrant a move. Conduct market research to understand the typical volume and length of contracts awarded in your line of business among all area agencies. You may find that even though there are several contracts, they are multi-year contracts that may not come up for re-solicitation for a while.

Finally, be sure to evaluate resource availability before you make a move. The last thing you want is to relocate, secure several new contracts via the local preference program, and then find yourself strained to fulfill obligations due to a lack of resources during your period of rapid growth.